AIG 2006 Annual Report Download - page 104

American International Group, Inc. and Subsidiaries
Management’s Discussion and Analysis of
Financial Condition and Results of Operations Continued
Net Realized
GAAP Investment Capital Gains Total Operating
(in millions) Premiums Income (Losses) Revenues Income
2004
Japan and Other:
Life insurance $ 4,469 $1,371 $(134) $ 5,706 $1,079
Personal accident 3,307 96 16 3,419 932
Group products 1,229 378 (42) 1,565 133
Individual fixed annuities 312 1,011 4 1,327 236
Individual variable annuities 68 142 — 210 13
Total $ 9,385 $2,998 $(156) $12,227 $2,393
Asia:
Life insurance $10,469 $2,676 $ 497 $13,642 $2,098
Personal accident 994 83 17 1,094 260
Group products(c) 986 53 14 1,053 90
Individual fixed annuities 83 23 — 106 7
Individual variable annuities — 1 — 1 —
Total $12,532 $2,836 $ 528 $15,896 $2,455
Total Foreign Life Insurance & Retirement Services:
Life insurance $14,938 $4,047 $ 363 $19,348 $3,177
Personal accident 4,301 179 33 4,513 1,192
Group products(c) 2,215 431 (28) 2,618 223
Individual fixed annuities 395 1,034 4 1,433 243
Individual variable annuities 68 143 — 211 13
Total $21,917 $5,834 $ 372 $28,123 $4,848
(a) Includes the effect of out of period adjustments related to the accounting for certain interests in unit investment trusts. For 2006, the effect was an
increase of $32 million in both net investment income and operating income.
(b) Includes the effect of out of period adjustments related to the accounting for certain interests in unit investment trusts. For 2006, the effect was an
increase of $208 million and $137 million in net investment income and operating income, respectively. Operating income also includes an out of
period reduction in participating policyholder dividend reserves of $163 million, primarily as a result of tax remediation adjustments.
(c) Revenues include approximately $640 million of premiums from a single reinsurance transaction involving terminal funding business, which is offset by
a similar increase of benefit reserves.
2006. In addition, operating income was negatively affected by
AIG transacts business in most major foreign currencies and the continued runoff of the older, higher margin in-force business
therefore premiums reported in U.S. dollars vary by volume and of AIG Star Life and AIG Edison Life.
from changes in foreign currency translation rates. The following Life insurance GAAP premiums declined in 2006 compared to
table summarizes the effect of changes in foreign currency 2005 primarily due to the effect of foreign exchange. Foreign
exchange rates on the growth of the Foreign Life Insurance & exchange negatively affected GAAP premiums by approximately
Retirement Services GAAP premiums for the year ended Decem- $250 million, most notably as a result of the weakening in the
ber 31, 2006 and 2005: Japanese Yen. Life insurance operating income grew $445 million,
primarily due to an increase of $368 million of realized capital
2006 2005
gains. Life insurance growth improved due to an increase in single
Growth in original currency* 6.4% 2.5% premium life insurance sales in Japan as a result of further bank
Foreign exchange effect (2.0) 2.5 deregulation effective in December 2005. The expansion of the
Growth as reported in U.S. dollars 4.4% 5.0% bank distribution platform for single premium life insurance
products adds to the existing multiple distribution platforms in
* Computed using a constant exchange rate for each period.
Japan, where AIG remains the leading foreign insurance provider.
Personal accident revenues grew $258 million or 7 percent
Japan and Other
resulting in operating income growth of $71 million or 7 percent.
2006 and 2005 Comparison Personal accident operating income includes the effect of higher
Total revenues for Japan and Other increased $743 million in terminations of certain accident and health policies in Japan
2006, to $16.0 billion, compared to 2005. Operating income grew which increased expenses by $54 million in 2006. The higher
$773 million, due to growth in the underlying retirement services terminations are a result of a change in the Japanese tax
businesses and realized capital gains of $406 million. The 2006 regulations that reduced the tax deduction for premiums. AIG’s
results for the reporting unit were negatively affected by the Japanese operations have experienced lower sales and higher
weakening of the Japanese Yen against the U.S. dollar during terminations of these contracts. DAC related to these accident
54 AIG 2006 Form 10-K